The Muskrat Falls hydroelectric project received another big stamp of approval Wednesday — but it came with some big caveats.

An external review by Manitoba Hydro International (MHI) affirms Muskrat Falls is the least-cost option of two alternatives — but notes there are risks in the assumptions made in key areas.

Premier Kathy Dunderdale said she was pleasantly unsurprised by the conclusion, and that the MHI report will help inform the final government decision later this year on whether to proceed with the project.

In the meantime, she said she expects Nalcor will get to work on any issues the report found.

“If there are things that we need to do more in-depth work on, then that’s the whole purpose of this,” she said. “If there are gaps identified, then let’s see what they are and let’s do something about it.”

Manitoba Hydro’s review of the “infeed option” concludes it’s more viable than the isolated-island option, which would drop an island-to-mainland link and involve more hydro and wind projects. The investigation was based on material, data and assumptions provided by Nalcor.

“There are, however, risks associated with the assumptions used for certain key inputs such as load, fuel prices and cost estimates which may impact the CPW (cumulative present worth) analysis for the two options,” says the report, which adds that the risks associated with those areas are magnified due to the length of the forecast period, from 2010 to 2067.

As it stands, the report agrees with Nalcor’s findings that the infeed option is cheaper than the isolated island option by about $2.2 billion, but outlines risks that may affect cost estimates.

“Should the existing pulp and paper mill cease operations, and its generation capacity be available for use on the system, and should the capital costs of both of the Muskrat Falls Generating Station and Labrador-Island Link (high-voltage-direct current) projects increase by 10 per cent, the cumulative present worth for the two Options would be approximately equal,” says the report.

The review also warns that the capital cost estimates, although calculated using an industry-standard method, could increase by as much as 50 per cent: “Should such a result occur, the differential of the CPW between the two Options would be reduced from $2.158 billion to $194 million.”

Fuel prices are likewise volatile, says the report, noting that while global disruptions in supply: “If fuel prices drop by 44 per cent below those used by Nalcor, the difference between the two cumulative present worth results becomes neutral. However, if fuel prices rise more than the reference price used in the cumulative present worth analysis, an even greater difference between the cumulative present worth results would occur.”

The report also says Nalcor’s reliability studies are solely resource-adequacy studies without consideration for transmission, and recommends doing risk-based assessments, which would allow Nalcor to better compare the relative reliability between the two options.

“Probabilistic assessments are a valuable means to assess system risk, reliability and associated costs/benefits for various system improvement options particularly for major projects such as those under review,” reads the report.

The MHI report was commissioned by the Public Utilities Board, to provide an independent assessment of the project’s merits. Now, the PUB will hold public hearings in the province over the next month, before presenting a final report to the government by the end of March.

Nalcor CEO Ed Martin said he relishes the independent analysis process, and that the corporation tries to get as many “cold eyes” to examine their numbers as possible,

“We are not only open to independent reviews of this project, but they are actually in integral part of our process, and I’m invigorated and energized by them — they’re essential,” he said. “MHI has made some recommendations for additional analysis by Nalcor, we will consider all of this input prior to making a recommendation to our shareholder on project sanctioning.”

All of the information used in the MHI report was from the fall of 2010.

Nalcor has been using a “gated” process, where it draws together all the information it has before making the decision to proceed to the next phase of the process. It passed through “Gate Two” in 2010, where it selected Muskrat Falls as the preferred alternative, and started doing detailed engineering work.

Martin said they will have more specific cost estimates and financing numbers before they make the “Gate Three” decision, when the government formally sanctions the project and the proceed with construction.

Both Dunderdale and Martin said the government is on track to make that decision some time later this spring.

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Cyril Rogers

February 02, 2012 - 10:15

The only outcome of a flawed analysis, based on one-sided and limited data, equals a flawed recommendation. The support of the MF project from MHI was inevitable, given the sources of its data. The only truly independent analysis, the Environmental Assessment Panel Review, turned the project down because of NALCOR's failure to prove its points. How quickly the government and NALCOR dismissed it but proudly proclaimed the reports from NAvigant and MHI, both based on NALCOR data. Even these supportive reports issued caveats because of the unreliability of the forcasting models. It's like boarding another fianancial Titanic without a lifeboat! The strident accusation, that all of the critics are partisan, is simply a reflection of the lack of a firm argument by the Premier and Minister Kennedy. It is a total red herring and yet another shining example of their arrogance! Reducing the critics to being "partisan" is the last fortress of the scoundral who has no real response and wants to deflect the issues. We need a statesmanlike approach here and the Premier and Minister Kennedy have reduced it to petty politics. Shame on them!

HBG

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